Desrocher Ltd. issued an instalment note on January 1, 2023 (with a required yield of 9%) in exchange for land that it purchased from Safayeni Ltd. Safayeni’s real estate agent had listed the land on the market for $120,000. The note calls for three equal blended payments of $43,456 that are to be made at December 31, 2023, 2024, and 2025.

Instructions

a. Discuss how the purchase price of the land will be established.

b. Finance Using (1) factor tables, (2) a financial calculator, or (3) Excel function PV, prove that the note will cost Desrocher 9% interest over the note’s full term.  Prepare an effective interest amortization table for the instalment note for the three- year period. Round to the nearest dollar.

c. Prepare Desrocher’s journal entry for the purchase of the land. d. Prepare Desrocher’s journal entry for the first instalment payment on the note on December 31, 2023.

e. From Safayeni’s perspective, what are the advantages of an instalment note compared with a regular interest-bearing note?